More Americans Are Planning to Retire Later in Life. Here’s How to Prepare Now for Retirement Expenses, No Matter Your Age
For many Americans, retirement is getting further out of reach, according to a recent study released by Gallup.
The survey, which polled 1,018 Americans, revealed that workers are retiring at a later age than they have in the last three decades. In 1991, the average age of retirement was 57, but it’s now up to 61. The target retirement for non retirees, or those planning to retire, went up to 66 from 60.
Some experts are attributing this to longer life expectancies, but record high inflation and volatility in the housing and stock markets are factors too.
“[The S&P 500] is currently in a bear market with high inflation. Meaning, people’s retirement accounts are worth less, and things cost more,” says Beau Henderson, a retirement specialist and CEO of Rich Life Advisors. “And with rising interest rates, borrowing to buy things such as a home or car costs more. Higher costs are making people wary that maybe they don’t have enough to retire, and they’re working longer,” says Henderson.
Planning for retirement should start as soon as investors are able to. Here’s how everyone can prepare for retirement, no matter their age or where they are in life. A little goes a long way.
How to Start Saving for Retirement Now
Planning for retirement doesn’t have to be daunting. Getting ahead of your finances, making a budget, and sticking to your investment plan can help tremendously. Every dollar you invest now will benefit you in the future. Fidelity recommends putting away 15% of your annual income towards retirement each year. Keep in mind your retirement goal will depend on many factors, like how long you anticipate working and your income, to name a couple things.
Here are some ways to start saving for retirement now:
Start investing now and make it a habit
American businessman and investor Warren Buffett said the best time to start investing was several years ago, and the second best time is today. In other words, the sooner you get started, the better. Don’t wait to jump into the stock market for fear of the unknown. The longer you have your money invested, the better chance compound interest can work in your favor, as your money will compound on itself over and over again.
For example, if you started investing $6,000 a year into your Roth IRA starting at age 25 with an estimated 9% annual rate of return and invested it for 35 years, you will have an estimated $1.2 million by the time you’re 60.
But if you wait until you’re 35 to start investing that $6,000 annually, you will have about $508,000 by the time you hit 60 years old. Not a small amount of money, but also probably not enough to sustain you in your golden years.
Dollar-cost averaging, or automatically transferring the same amount of money into your retirement accounts every month, is a great place to start. You can essentially set your transfer and always know that money is being sent to your investment accounts, no matter what.
Pro Tip
Take advantage of the tax benefits that both a Roth IRA and a 401(k) give. By investing in both accounts at the same time, you can take advantage of the compound interest in both accounts.
Take advantage of retirement accounts
Take advantage of the tax benefits that retirement accounts have to offer. Some shield you from taxes.
401(k)
If you have a workplace-sponsored retirement account, use it to save for retirement. A 401(k) lets workers save a portion of their pay (before taxes) to be used later in life. You don’t pay taxes until you withdraw it.
You can stash your money in a 401(k) and invest it in investment options like mutual funds or ETFs. Many companies will match contributions, so make sure you’re depositing enough to get that free money.
ANGRY
An IRA, or an Individual Retirement Account, is opened by an individual, not a company. There are different types of IRAs with different advantages.
A Roth IRA accepts after-tax dollars, or money you’ve already paid taxes on. Once the money is deposited, it’s invested and grows tax-free until 59 ½ when you’re eligible to take it out. Investors love using both a 401(k) and a Roth IRA to save for retirement as they have different tax benefits.
A traditional IRA allows you to make pre-tax contributions and pay taxes on the money when you withdraw at retirement. That amount will depend on the tax rate at the time.
For both a Roth IRA and traditional IRA, investors can deposit $6,000 a year if they’re under 50, or $7,000 if older than 50.
A Rollover IRA lets you move money from a previous account (like a 401(k)) over to an IRA without paying taxes or penalties. By “rolling over” the money from other retirement accounts, you can keep your money invested and not pay early withdrawal penalties.
Bottom line
If you’re currently planning retirement, make sure you’re taking advantage of all the benefits retirement accounts award you. If you need more information on investing for beginners, check out this article from NextAdvisor to get started.